Degrees protected new grads from recession's worst

By Justin Pope, AP Education Writer

Thursday, January 10, 2013

It was a defining image of the Great Recession: floundering college grads stuck back home, living in mom and dad’s basement. But while rooted in some truth, that picture doesn’t show fully how the prolonged economic downturn broadly impacted people in their early 20s, according to a new study out Wednesday.

In fact, those degrees offered strong protections against the recession’s worst effects.

The study, an analysis of U.S. Census data by the Pew Economic Mobility Project, makes no claim recent years have been golden ones for new college graduates. Wages were down and have yet to recover, unemployment and student debt were up, and fewer grads have found jobs befitting their education-level. But the report finds all of those negative effects came in much smaller doses for college graduates than for those with associate’s degrees and only a high school credential, and that fewer graduates fell out of work entirely.

“This is not to discredit those individual stories” of adult children lodged in basements, said Diana Elliott, research manager for the project. “But overall, the majority of college graduates came through the recession with some minor setbacks in the labor markets” — at least in comparison to those with lesser credentials.

The study contributes to an increasingly voluble national debate over the economic value of a college degree. It doesn’t factor in the price — a critical variable when families ask if college is worth it. Average tuition and fees at four-year public colleges rose 5 percent this year to $8,655 this year, according to the College Board, while two-thirds of the graduating class of 2011 finished school with loan debt, borrowing on average $26,600.

Most experts contend that despite tuition inflation, the wage premium for a bachelor’s degree remains generally worthwhile, amounting by some calculations to up to $1 million in lifetime earnings on average. The current unemployment rate is 3.9 percent for those with a bachelor’s degree or higher, compared to 6.9 percent for those with an associate’s or some college, and 8 percent for those with just high school.

But those figures cover adults of all ages, and there’s been less study of whether the cost-benefit analysis might look different for recent graduates. Pew said it wanted to focus on 21-to-24 year olds, asking whether the recent downturn was so severe that it fundamentally changed the equation for those who entered the labor market at its worst.

The report finds the employment rate for people in that age group with a bachelor’s degree fell from 69 percent before the recession to 67 percent during, and was still down at 65 percent as of December, 2011. But the drops were sharper for those with lower credentials — from 64 percent to 57 percent for those with associate’s degrees, and 55 percent to 47 percent for those with just high school.

One hypothesis is that college graduates maintained their employment numbers only by settling for jobs that don’t require a degree — an issue that Republican nominee Mitt Romney raised repeatedly during last year’s presidential campaign, arguing up to half of recent college graduates couldn’t find work befitting their degree.

Indeed, the report finds just 42 percent of all new college graduates were in jobs defined as requiring a college degree. Looking only at those working (not those back in school, for instance) just 60 percent held jobs requiring a bachelor’s. But while those percentages did decline slightly during the recession, they were fairly comparable to long-term trends. Since 2003, the average has been about 62 percent. It’s nothing new that college graduates often take first jobs that don’t make full use of their education, and the earnings benefits come only longer-term.

“It takes some experience to move up the ranks in the labor market,” Elliott said.

The worst news in the report is that wages appear to have continued to decline at all education levels, even since the recession officially ended. Still, the declines have been less severe for those with a four-year degree and they appear to have stabilized, which is not the case for those with lower credentials.

Before the recession, recent four-year college graduates earned $681 per week on average. After the recession, that figure had declined 5 percent to $645. But for associate’s degree holders, average wages fell 12 percent, from $512 to $452, and for high school graduates they fell 10 percent, from $438 to $394.

In short, being born around the late 1980s put you on track to finish school at the worst time in memory to be a newly minted graduate. The only thing worse? Not being one.